The Canadian dollar consolidated inside yesterday’s range as the U.S. dollar clawed back some losses overnight.
Wednesday’s Bank of Canada policy meeting lived up to its advance hype. It was expected to be a non-event, and it was. The BoC left interest rates unchanged at 0.25%. The statement was mildly positive, suggesting that the impact of COVID-19 on the economy had peaked, but hedged the statement by noting high uncertainty about how the recovery would unfold.
The BoC also managed expectations by saying “the level of real (Gross Domestic Product) in the second quarter will likely show a further decline of 10-20 percent, as continued shutdowns and sharply lower investment in the energy sector take a further toll on output.”
It was also Stephen Poloz’s final meeting as Governor. His replacement, Tiff Macklem, attended the meeting but according to the BoC statement "He participated as an observer in Governing Council’s deliberations for this policy interest rate decision and endorses the rate decision and measures announced in this press release."
The BoC statement was lost in the noise of the ADP employment data. The 2.66 million increase in job losses was well below the forecast of a loss of 9.0 million jobs. The Institute for Supply Management non-manufacturing report was also better than expected (actual 45.4 vs prediction 44). Wall Street and FX traders liked what they saw. The major U.S. stock indexes closed higher led by a 2.05% gain in the Dow Jones Industrial Average as investors bought into the story of a robust post-COVID-19 economic recovery. The U.S. dollar retreated on the back of "risk-seeking" demand.
Asia followed Wall Street’s lead but a lot less aggressively. Asia equity indexes closed with small gains, but profit taking helped the U.S. dollar claw back some losses. AUD/USD traders ignored Retail Sales and trade data as prices traded lower alongside broad U.S. dollar demand. NZD/USD followed AUD/USD moves.
EUR/USD retreated ahead of today’s European Central Bank policy meeting, despite Germany announcing a new €130-billion stimulus plan. The ECB is expected to increase PEPP while leaving interest rates unchanged.
GBP/USD dropped from $1.2580 to $1.2502 but rallied to $1.2565 in early New York trading. Profit-taking and concerns about the E.U./U.K. trade talks drove prices lower, while global recovery hopes fueled the rally.
FX traders are awaiting the ECB press conference and today’s U.S. jobless claims data.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
